Inari Amertron: A Comprehensive Analysis of the Semiconductor Giant

Date: December 10, 2024

Broker: Maybank Investment Bank Berhad

Overview

Inari Amertron, one of Malaysia’s leading technology companies, stands as the largest semiconductor player in the region. Its prowess in back-end wafer processing, assembly, and testing of RF and optoelectronic products has garnered a global clientele, prominently including Broadcom. The report by Maybank Investment Bank Berhad meticulously dissects Inari’s current standing, potential risks, and future prospects.

Key Concerns and Challenges

The report prominently highlights the potential risk of Inari losing its core RF business, a significant revenue source due to its main end-customer contemplating in-housing production of cellular/connectivity chipsets. Despite this looming threat, the risk appears to be contained for now. However, Inari’s near-term prospects remain challenging due to margin pressures from lower volume loads, new product introduction ramp-ups, and increased labor costs. Consequently, the recommendation remains a ‘HOLD’ with an unchanged target price of MYR2.93.

Apple’s Strategic Shift

Apple’s reported move to launch in-house cellular modems by 2025, codenamed Sinope, has raised questions about the future of its supply chain. Currently, Qualcomm supplies Apple’s cellular chipsets, while Broadcom provides the connectivity chips (FBAR filters). Notably, Broadcom is Inari’s key RF customer, accounting for approximately 70% of Inari’s annual turnover. Despite Bloomberg’s assertion that Apple’s in-house modems will be fully utilized across all iPhone ranges by 2027, Maybank’s analysis suggests that Apple is unlikely to replace Broadcom’s FBAR filters due to low procurement costs and potential IP infringement risks.

Broadcom’s Position

Broadcom remains a critical player in Apple’s supply chain, benefiting from a multi-year supply agreement renewed in May 2023. The agreement underscores the strategic importance of Broadcom’s RF components, design, and manufacturing, all conducted on US soil. The report argues that the economic and legal risks outweigh potential cost savings for Apple, making it unlikely to disrupt its existing vendor relationships with Broadcom.

Inari’s Financial Performance

Inari’s financial metrics highlight its robust position in the semiconductor industry. Despite challenges, the company’s RF segment sales are anticipated to show resilience, driven by higher content growth. However, softness in end-demand, particularly from slowing iPhone sales in China, poses a concern. Inari’s share price stands at MYR 2.97, with a 12-month price target of MYR 2.93, reflecting a marginal 1% growth potential.

ESG and Sustainability Initiatives

Inari scores well in Maybank’s ESG assessment, achieving an overall score of 69/100. The company has demonstrated a commitment to sustainability, as evidenced by its energy intensity and waste management strategies. It has been certified ISO 14001 since 2007 and continues to strive for environmental impact minimization. The company is working towards increasing female representation on its board and enhancing governance practices.

Strategic Outlook

Inari Amertron continues to leverage its competent management team and strong track record to capitalize on the mass deployment of 5G smartphones. The company’s strategic initiatives in energy efficiency, water management, and waste reduction position it well for future growth. Despite current challenges, Inari’s market-leading position and resilience in its RF segment provide a solid foundation for navigating future uncertainties.

Conclusion

Inari Amertron’s detailed analysis by Maybank Investment Bank Berhad paints a picture of a company well-positioned in the semiconductor industry but facing notable challenges. While the company’s financial and strategic metrics show strength, the potential in-housing of chipsets by key clients like Apple remains a critical risk. Investors are advised to consider these factors and the company’s strategic responses when evaluating their investment decisions.